S&P500 ETF (SPY) trade

DOW Jones and S&P dropped two consecutive days post rate hike last Wednesday. I will monitor Monday’s S&P 500 Index Futures (/ES) before market open to decide if I will proceed to initiate a Bull Put Credit Spread against S&P500 ETF (SPY). My view is that the SPY has a high probability of trading range-bound/consolidation between 195 to 215 in the next 1 or 2 months. Hence, I am keen to construct the following trade after the market open tomorrow:-

1. STO SPY 195 PUT strike, Jan Wk5 2016, 39 DTE
2. BTO SPY 190 PUT strike, Jan Wk5 2016, 39 DTE

These 2 trades should be initiated concurrently and I am looking to collect premium of $1.20, which is $120 per lot options. In terms of risk, the max risk in this strategy should be $3.80, which is $380 per lot options if SPY drops to below 190 after 39 days. Do also note that the max risk should only happen if we do nothing against the trades after we initiate the trade. I will discuss trades repairs method in the next post. Basically, there are 7 adjustment/repair methods.

In case you have forgotten the acronyms
STO – Sell To Open
BTO – Buy To Open
Wk5 – Week 5 of the month
DTE – Days to expiry

I will update tomorrow if I will execute this trade. Cheers!

Disclaimer: This is not a recommendation, it is just for educational purpose only.

 

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